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Strategy Formulation Using Early Mover Theory and Late Mover Theory

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The managers of your company are deciding whether to develop a brand new product not yet seen in the marketplace or a version of a competitor's product that has already been launched into the marketplace.

Management has called a meeting to discuss which way to go. They want to know if they should follow the "first-mover" theory or "late-mover" theory. You have been assigned the task to develop a neat and organized report for this meeting that will give evidence that describes and discusses either support or disagreement with these theories. You may use the library or other web resources to find more information on these terms as well as examples to support your position.

As a new consultant, you really don't know much about the company involved, the potential products that the managers want to discuss in their meeting, nor the personalities of the managers who will be attending the meeting. The very best that you can really do within the given scenario is to thoroughly and factually explore both of these theories in your report as input for their discussion during the remainder of the meeting.

You should provide an unbiased comparison of the two theories.

1. Identify at least four advantages and four disadvantages for each theory and comprehensively show how each advantage or disadvantage affects the use of that theory (a minimum of 16 pros/cons in all).

2. Identify at least four examples of real firms who have been successful and four examples of real firms who have been failures using each theory (a minimum of 16 real firms in all).

3. Provide a definitive and unbiased recommendation of which theory to use. You should provide the specific attributes which constitute the most advantageous context in which the chosen theory operates and justify your recommendation with researched support, logic and examples.

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Please find the following guidance notes. These are notes with references for Early Movers and Late Movers with examples. Brainmass provides you teaching assistance and therefore, we only guide you and provide teaching notes. Out of the detailed discussion provided, you must have your own recommendations which you can elaborate with the help of web references provided herein. This will help you in developing your analytical and managerial skills also. Our effort is always to provide you best assistance, but not the complete solution.

Part I: Early Mover Theory
The company which produces and sells a new product or service first in the market is called the first mover or pioneer (Hunger & Wheelen, 2010: 200).

According to Hunger and Wheelen (2010: 200), the advantages of First Mover theory are:

1) Company is able to establish a reputation as an industry leader.
2) Company can move down the learning curve to establish itself as a cost leader.
3) By being an early mover, the company can set standards for all subsequent products in the industry.
4) Higher profitability for early movers due to huge initial sales volume and lower costs.
5) Company sets its standards due to which the company is able to retain the customers and is able to offer the future products that attract the same set of customers.

First Mover advantages arise from three sources (Lieberman & Montgomery, 1987: 2):

1) Technological Leadership - which can be attained through the learning curve or experience curve where the company achieves economies of scale through increase in output or can be attained through success in research and development and getting patents.
2) Preemption of Assets - The company identifies the assets which are available at low cost initially, but whose cost of acquisition increases substantially after some time. For example, land in an unexplored area may cost low at the initial stages but when the buildings are erected and townships are developed the prices of the land may increase in that area.
3) Buyer's switching costs - will be high for the other players who enter the industry at a later stage as they have to invest substantially in other resources to attract the buyers from the competitors.

Late Mover Theory:
According to Hunger and Wheelen (2010: 201), the advantages of late mover could be the disadvantages of First Mover theory which are as follows:

1) The company may have to incur high costs of R&D which the late movers can keep at a lower level.
2) If the product is not successful in the market, the late movers may take the advantage and bring new products with improvements.
3) Rapid Technological Advancement may lead to fast obsolescence of the products.
4) First movers have natural inclination to ignore certain market segments.

Lieberman & Montgomery (1987) have described the Late Mover Advantages as follows:

1) Ability of the later movers to free-ride on investments of early movers as the infrastructure is already well developed, buyer is already knowing about the product and the technology has already been developed as a result of R&D by ...

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  • BCom, M.D.S University, Ajmer
  • MBA, M.D.S University, Ajmer
  • PhD, Suresh Gyan Vihar University, Jaipur
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